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Bills Digest No. 163 1998-99 Telecommunications Laws Amendment (Universal Service Cap) Bill 1999

Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details

Passage History

Telecommunications Laws Amendment (Universal Service Cap) Bill 1999

Date Introduced: 25 March 1999

House: House of Representatives

Portfolio: Communications, Information Technology and the Arts

Commencement: The Act commences on Royal Assent. If the Act does not receive Royal Assent by 30 June 1999, Schedule 1 is taken to have commenced on that date. Schedule 2 is taken to commence immediately after Part 2 of the Telecommunications (Consumer Protection and Services Standards) Act 1999.

Purpose

To cap the cost of the Universal Service Obligation (USO) at $253.32 million for 1997/98 and to provide for a formula for calculating the cap in 1998/99 and 1999/2000. The capping period will allow for a review of the methodology for calculating the cost of the USO.

Background

What is the USO ?

The Telecommunications Act 1997 contains provisions establishing a universal service regime. The purpose of the regime is to ensure that all people in Australia, wherever they reside or carry on business, should have reasonable access, on an equitable basis, to standard telephone services, payphones and prescribed carriage services. Telstra is currently solely responsible for fulfilling the universal service obligation.

The Telecommunications Act 1997 allows USO providers to recover some of the losses that result from supplying services in the course of fulfilling the USO. A levy is imposed on all carriers in proportion to their share of total carrier revenue. Telstra submits its claim for providing the USO (the net universal service cost - NUSC) to the Australian Communications Authority (ACA) for assessment. Following this process, the ACA announces the USO levy. Telstra contributes 85-90% of the USO levy.

In 1996/97 the NUSC agreed among carriers was $252 million. In 1997/1998 Telstra employed methodology prepared by Bellcore International to determine the NUSC. The model was agreed by Telstra, Optus, Vodafone and the ACA. Based on its interpretation of the model, Telstra submitted that its NUSC for 1997/1998 was $1.8 billion.

In October 1998, the Minister announced(1) that the Government would attempt to reach agreement with all telecommunications carriers to cap the NUSC at $253.32 million for the 1997/98 financial year. The Minister also stated that if such an agreement could not be met the Government would legislate to cap the NUSC. At this stage no agreement has been reached.

The Government has acknowledged that the cap is only an interim solution, pending a reviewing of arrangements for funding the USO.(2) In the mean time the ACA is continuing its work assessing Telstra's claim.

Why is it necessary to impose a cap?

Telstra's claim of $1.8 billion is a massive increase in the NUSC. Rival carriers have strongly disputed Telstra's calculations. For example, C&W Optus has claimed that it could provide the USO service for only $178 million by using a combination of wireless and satellite technology.(3)

There is concern that if the claim were to stand, the levy contributions required of other carriers would cripple competition in the telecommunications industry. Based on figures contained in the Explanatory Memorandum, if Telstra's NUSC claim were upheld, the levy contribution required from other carriers would rise by more than 600 per cent. The ACA is expected to provide an assessment of Telstra's claim by 30 June 1999. While the ACA's assessment process could result in considerably lower levy contributions,(4) during the intervening period, the industry would be subject to substantial uncertainty that may inhibit investment.

Armed with the ACA's assessment, the Minister will cause a review of funding arrangements for the USO to be conducted. The Government expects to carry out a review in 1999 and to enact changes to USO funding arrangements before 2000-2001.

The period of the cap will also allow time for consideration of the issue of USO tendering. In evidence before the Senate Environment, Communications, Information Technology and the Arts Legislation Committee,(5) C&W Optus, AAPT and Network Vodafone all expressed interest in competitive tendering for the USO which is provided for in the Telecommunications Act 1997. The Government has indicated that it is keen to investigate the option and as part of this process in early April, the Department of Communications, Information Technology and the Arts issued a discussion paper on the subject.

Main Provisions

The objective of providing a capping regime for 1997/98, 1998/99 and 1999/2000 requires amendments to the Telecommunications Act 1997 and the proposed Telecommunications (Consumer Protection and Service Standards) Act 1999 (the Consumer Protection Act).(6)

The Consumer Protection Act is largely a restatement of existing legislation.(7) In his second reading speech, the Minister for Finance and Administration (Mr Fahey) said 'it is essentially a transparency measure drawing together the full range of consumer safeguards in a single Bill making it easier for consumers to access information about their rights.'

As the Consumer Protection Act will re-enact the USO provisions, the equivalent part of the Telecommunications Act 1997 is repealed by the Telecommunications Amendment Bill 1998.

The amendments to the Telecommunications Act 1997 in Schedule 1 will cap the cost of the USO in 1997/98 and 1998/99. While the amendments to the Consumer Protection Act in Schedule 2 will establish the cap for the 1999-2000 financial year.

Schedule 1 amends Sections 183 and 186 of the Telecommunications Act 1997. These provisions deal with the assessment of the USO levy liability.

Section 183 allows universal service providers to claim levy credits for the cost of providing the USO. Subsection 183(5) provides that the claim must be accompanied by a report of an approved auditor. Item 1 allows the ACA to waive compliance with the audit requirements for a capped financial year.

Item 3 amends subsection 186(1) so that the mechanism outlined in that section for calculating the NUSC does not apply for a financial year that is a capped financial year.

Item 4 imposes new subsections 186(13-27). New subsection 186(13) provides that a capped financial year includes 1997/1998, 1998/1999 and 1999/2000.(8)

New subsection 186(14) sets the cap for 1997/98 at a maximum of $253.32 million. However the ACA processes for assessing the levy amount will continue for 1997/98. If the ACA finds that the USO obligation should be less than $253.32 million then that lower amount will apply.

New subsection 186(15) imposes a cap formula for financial years 1998/1999 and 1999/2000. If the USO provider is Telstra and the Minister has not made a determination the NUSC will be $253.32 million multiplied by an 'indexation factor' which will reflect movements in the CPI. Where the USO provider is not Telstra, the NUSC is zero unless the Minister has made a determination.

The Ministerial determination powers are contained in new subsections 186(16) and 186(17). The Explanatory Memorandum(9) provides three examples of situations where a Ministerial determination may be necessary:

Where as a result of the ACA's assessment of Telstra's 1997/98 claim, it determines that costs are less than the $253.32 million cap
Where as a result of a tendering process, a carrier other than Telstra is declared a national or regional universal service provider
Where a new service is added to the Universal Service Obligation.(10)

In making such determinations, the Minister may seek the advice of the ACA. Such determinations are subject to Parliamentary disallowance (new subsection 186(19)).

New subsection 186(18) provides that the Minister in his determination does not need to take account of sub-paragraphs 138(c) or (d). These provisions constitute part of the objects of the Universal Service regime. Paragraph (c) provides that the losses that result from supplying loss-making services in the course of fulfilling the USO should be shared among carriers. Paragraph (d) provides that this information should be generally open to the public.

Item 5 deals with the possibility that an argument could be made that by varying Telstra's capacity to collect the NUSC, the Act could be characterised as a law with respect the acquisition of property. In that case, the constitutional requirement for just terms would be invoked. Item 5 applies section 591 of the Telecommunication Act 1997 to this Bill to ensure that reasonable compensation must be paid. The Explanatory Memorandum(11) states that the amendment was prompted by caution against a claim that the acquisition 'occurred as a result of the amending Act, rather than the amended Act.'

The amendments in Schedule 2 to the Consumer Protection Act largely mirror those outlined above with the exception that it only applies a cap for financial year 1999/2000.(12)

Items 4 amends section 57 which (like section 186 of the Telecommunications Act 1997) sets out the various mechanisms for determining the NUSC. Under Item 4, in the absence of a Ministerial determination, Telstra's NUSC for the 1999-2000 financial year will be $253.32 million multiplied by the indexation factor (new subsection 57(13)). The indexation factor will be the increase in the consumer price index since 1997/98 (new subsection 57(18)).

If the USO is in part tendered out in 1999/2000, that carrier's NUSC will be specified by Ministerial determination or else be zero (new subsection 57(13)).

Concluding Comments

This interim measure has wide industry support. It represents the least disruptive way of buying time for the industry pending a review of USO cost recovery arrangements and the exploration of competitive tendering options.

Endnotes

Minister for Communications, the Information Economy and the Arts (Senator Alston), 'The Universal Service Obligation Cost', Media Release, 12 October 1998.
Minister for Communications, the Information Economy and the Arts (Senator Alston), 'Government to Cap Net Universal Service Cost', Media Release, 25 March 1999.
Nick Miller, 'Optus Claims Rural Rip Off', The West Australian, 18/2/1999, p. 7.
The ACA recently released two reports that it had commissioned as part of its assessment Telstra's NUSC claim. The ACA has stated that adoption of the input values recommended in the reports would result in a significant reduction in the NUSC amount compared to Telstra's claim. See ACA, 'Release of Net Universal Service Cost Reports', Media Release No.21, 20 April 1999.
Evidence 3 February 1999, p. 8, 16, 21.
The Telecommunications (Consumer Protection and Service Standards) Bill 1998 passed the House of Representatives on 26 November 1998 and is now before the Senate.
See Bills Digest No. 55 1998-99.
The reference to the 1999/2000 being a capped year is presumably to accommodate the situation where the Telecommunications (Consumer Protection) Bill 1998 is not passed and the USO provisions of the Telecommunications Act 1997 are not repealed.
See page. 15, 16.
In the 1998 election campaign, the Government made a commitment to ensuring that a 64kps digital data service delivered by ISDN would be available to 96% of the population and that for the other 4%, a comparable digital data download service delivered by satellite would be made available. In a recent speech, the Minister announced that amendments extending the USO would soon be introduced. See Minister for Communications, the Information Economy and the Arts (Senator Alston), Speech at the Communications Law Centre - USO Tendering Workshop, April 14 1999.
See page. 17.
Under Item 18 of Schedule 4 of the Telecommunications Amendment Bill 1998, the USO regime in Telecommunications Act 1997 continues to apply after July 1 1999 in relation to levy matters for a financial year ending on or before June 30 1999.

Contact Officer and Copyright Details

Mark Tapley
23 April 1999
Bills Digest Service
Information and Research Services

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Published by the Department of the Parliamentary Library, 1999.